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PSC staff sides with Duke in recommending against $54 million credit for customers

Published Sep. 26, 2014

Consumer advocates thought it was a just action on the part of state regulators: Order Duke Energy Florida to refund customers $54 million for nuclear components the utility bought for the canceled Levy County nuclear plant that were never produced.

It's a small portion of the $1.5 billion that angry customers are paying for the defunct project, but a credit nonetheless.

Duke wants customers to get the credit — but only if the company can win back the money in a lawsuit against the contractor. Until then, Duke says, regulators should not take any action.

This week, the state Public Service Commission's staff members recommended that their bosses side with Duke.

The staff recommendation counters the opinions of consumer advocates, who have locked arms in favor of an immediate credit to customers. The advocates include the Florida Retail Federation, the Florida Industrial Power Users Group, PCS Phosphate and the state Office of Public Counsel, which represents consumers before the commission.

In a joint brief, the advocates argue that Duke has "confirmed that those costs will never actually be incurred for the Levy project. The customers are entitled to receive their $54 million back."

Charles Rehwinkel, deputy public counsel, said one of the troubles with waiting until Duke's lawsuit gets resolved is the money might get bargained away in a settlement. By the end of this year, he said, customers will have paid every penny of the $54 million that produced nothing.

"The right thing would be to credit this money to customers and put the burden on Duke," Rehwinkel said. "This is money that, clearly, customers shouldn't have to pay."

If the commission votes in favor of the advocates, customers would stop paying for expenses related to the Levy project by mid 2015. A ruling against the advocates means the Levy payments of $3.45 a month for the average residential customer will run through early 2016.

An 8-year-old state law enabled Duke to collect the money in advance for the Levy project. The law, the Nuclear Cost Recovery Clause, or so-called "nuclear advance fee," allows Florida utilities to collect money from their customers for nuclear projects before they begin producing power.

But even proponents of the law have said that the advance fee is supposed to be "pay-as-you-go" for costs that the utility actually incurred.

Peter Bradford, a former U.S. Nuclear Regulatory Commission official, said collecting the $54 million without actually doing anything with it violates the advance fee law.

"This isn't early cost recovery," Bradford said. "This is phantom cost recovery. The money taken from customers didn't buy anything."

Rehwinkel put it this way: "It's just sitting in a bank."

And on that part, Duke agrees.

Duke is suing its former contractor, Westinghouse Electric Co., in federal court in North Carolina to reclaim the $54 million because the company never produced the equipment after receiving the money. Westinghouse is counter-suing Duke for $512 million for canceling the contract for the Levy project.

If Duke loses the case, customers could be on the hook for at least part, if not all, of Westinghouse's claim while still having to eat the $54 million for components that never materialized.

Cindy Muir, a PSC spokeswoman, said the staff's recommendation supports the idea that a court ruling in Duke's favor would pave the way for customers to get their money back.

"If the court awards Duke $54 million, or any amount, only then would there be funds subject to return to ratepayers by a commission determination," Muir said.

About the staff's position on the $54 million, Sterling Ivey, a Duke spokesman, said: "We are pleased with the staff's recommendation."

If Westinghouse prevails, then the cost to customers of all of Duke's failed nuclear ambitions in Florida — including the now-shuttered Crystal River nuclear plant that was lost in a botched do-it-yourself upgrade — could reach $4 billion.

The commission will vote on Oct. 2. It also will take up Duke's request to spend an additional $1.5 billion to build a natural gas plant now that the nuclear projects are dead.

Contact Ivan Penn at ipenn@tampabay.com or (727) 892-2332. Follow @Consumers_Edge.